Arrow Financial's 2024 Earnings: EPS Misses Expectations

In the ever-evolving landscape of financial markets, investors are constantly on the lookout for reliable income streams. Arrow Financial Corporation, a bank holding company, has been a staple for many income-focused investors. However, the company's recent earnings report for the full year 2024 has raised some eyebrows, as earnings per share (EPS) missed expectations. Let's dive into the details and explore what this means for investors who prioritize consistent, inflation-protected income.

The EPS Miss: What Happened?

Arrow Financial reported a net income of $29.7 million for the full year 2024, with EPS of $1.77. While this might seem impressive at first glance, it was a decrease from the $30.1 million and EPS of $1.77 reported for the same period in 2023. The core net income, which excludes non-core items, was $34.4 million or $2.05 EPS, indicating that the non-core charges and expenses had a substantial negative impact on the company's financial performance.

The EPS miss can be attributed to several non-core items that impacted the company's financial results. For instance, the fourth quarter of 2024 included a $3.0 million loss on the sale and repositioning of the securities portfolio, which amounted to $0.15 per share. Additionally, there was a $0.7 million write-off related to legacy branding items, contributing $0.03 per share, and $0.5 million in expenses related to the unification of the two bank subsidiaries into Arrow Bank, amounting to $0.02 per share. These non-core items collectively reduced the EPS by $0.20 per share.

Strategic Initiatives: A Double-Edged Sword

Arrow Financial's strategic initiatives in 2024, including the unification of its banking subsidiaries and acquisitions, had a significant impact on its financial results and are expected to yield long-term benefits.

1. Unification of Banking Subsidiaries:
- The unification of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company into Arrow Bank National Association was completed in December 2024. This initiative involved non-core expenses of $0.5 million related to legal, consulting, and compliance efforts. Despite these costs, the unification is expected to streamline operations and enhance efficiency.

2. Acquisitions:
- Arrow acquired a bank branch in Whitehall, New York, and the assets of A&B Agency, Inc., which contributed to loan growth and expanded its market presence. These acquisitions were part of the $0.4 million in expenses related to the acquisition of the Whitehall branch and the assets of A&B Agency, Inc.
- The net interest margin improved to 2.72% (2.74% FTE), up from 2.65% (2.67% FTE) in the prior year, reflecting the positive impact of these strategic moves.

3. Allpoint ATM Network:
- Arrow's banks joined the Allpoint ATM Network, expanding access to more than 50,000 ATMs worldwide. This initiative is expected to enhance customer satisfaction and retention by providing convenient access to ATMs.

Implications for Income-Focused Investors

For investors who prioritize consistent, inflation-protected income, the EPS miss is a cause for concern. Arrow Financial has a history of paying dividends, with a declared quarterly cash dividend of $0.27 per share, marking the 45th consecutive quarterly dividend. This consistent dividend payment is a positive sign for income-focused investors. However, the EPS miss suggests that the company may face challenges in maintaining or increasing its dividend payments in the future.



Red Flags to Watch

While Arrow Financial's strategic initiatives are expected to yield long-term benefits, investors should be aware of potential red flags. The company's non-core expenses and the EPS miss are clear indicators that there are underlying challenges that need to be addressed. Investors should monitor the company's financial performance and dividend policy closely to ensure that their income needs are met.

Alternatives if Rates Rise

In a rising-rate environment, it's crucial to have a diversified portfolio that can withstand market volatility. Investors should consider alternatives to Arrow Financial, such as high-yield dividend stocks in other sectors like utilities or REITs. These sectors often provide stable income streams and can act as a hedge against rising interest rates.

Conclusion

Arrow Financial's 2024 earnings report is a mixed bag for income-focused investors. While the company's strategic initiatives are expected to yield long-term benefits, the EPS miss and non-core expenses are clear indicators that there are underlying challenges that need to be addressed. Investors should monitor the company's financial performance and dividend policy closely and consider diversifying their portfolios to mitigate risk.